Tom Walker, manager of the £203.6m Martin Currie Global Portfolio trust, says he is “very nervous” about Europe due to the continued low interest rates environment, but remains positive on US stocks.
He says low interest rates in Europe have made it difficult for many stocks, especially banks, due to this year’s valuation rally. For this reason Walker does not have any European banks in the portfolio, having sold both HSBC and Norway’s DNB Bank this year. The trust held 1.8 per cent and 0.8 per cent in the stocks respectively.
Walker says: “I’ve gone underweight financials, as well as energy, this year. I am very nervous about Europe as we are going to have low interest rates for quite a long time and that is a challenging time for banks to actually grow.”
However, Walker still likes banks, but prefers those in the United States.
Walker holds US bank JPMorgan Chase, which tops the trust’s largest holdings at 4.1 per cent. He says he favours the bank as it has experienced 15 per cent growth in the third quarter of this year.
Overall, North America remains Walker’s favourite market and is the fund’s largest regional allocation at 58.7 per cent, with the manager having increased the exposure from 52.2 per cent in January.
He says: “Most of the recent changes in the fund have been driven by stocks as we look at good quality stocks that are undervalued for one reason or another.”
Walker mentions Visa, which he has recently added to the portfolio and is now the third largest allocation of the fund at 3.5 per cent, with Facebook in second place.
He says: “We like the company because it is enjoying structural growth. The change from people using cash and cheques to using credit card and debit card in the US is still in its infancy and there is also the move into online retailing which is causing a lot of people to use Visa considerably more.”
Rival MasterCard was also under Walker’s spotlight but he preferred Visa, especially following its acquisition of Visa Europe in June, which he believes will make the firm profitable.
Another add to the fund is UK’s Sky, Walker says: “Sky was weak on content costs but it is a relatively resilient company economically speaking and it performed very well during the last major recession.
“It offers very good valuation opportunities with their management maintaining costs at around 43 per cent of sales over time.”
Meanwhile, Walker has sold microchip maker Arm Holdings, which was previously 1.6 per cent of the fund, following its takeover.
He says: “We held quite a big position in Arm Holdings, but it was sold to SoftBank in July. Initially we hoped someone else would bid for Arm Holdings because we thought £17 was a pretty good price, especially for a Japanese buyer after sterling dropped by 12 per cent. But that didn’t happen and we waited until we received the proceeds from that cash offer which happened in September.”
Walker also sold Shell following the change in oil price.
He says: “Shell has bounced quite well on the oil price. We think there are restructuring opportunities for Shell, but with an already high level of borrowing, we feel Shell relies too heavily on asset sales to maintain its dividend – hardly sustainable in the long term. We think a lot of shareholders hold that stock just because it is a high dividend yield.”
Despite investors having “a lot of chances” with the current valuations in the market, Walker warns on the low interest rate environment and believes global equities remain the most attractive asset classes.
He says: “People have to accept we are in a low interest rate environment. Rates won’t get to 5 per cent, any hike will be minimal, but equities will still offer opportunity.”
Walker has managed the trust, which was launched in 1999 following a restructuring of the Scottish Eastern trust, since 2000. He also manages a number of segregated charity accounts and is head of the global long-term unconstrained team.
Before managing North American strategies, including the Global Portfolio trust, Walker specialised in Asian stocks at Edinburgh Fund Managers and Baring Asset Management.
The trust, which is a focused portfolio of 52 stocks, returned 30.1 per cent against the 31.2 per cent of the FTSE World index over one year to the end of September, according to Morningstar. It currently offers a 2 per cent yield.